McDonough Products, Inc. | |||||||
Income Statement Compared with Industry Average | |||||||
Year Ended December 31, 2010 | |||||||
McDonough | Industry Average |
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Net sales……………………………………………………………………. | $ 700,000 | 100.0% | |||||
Cost of goods sold…………………………………………………….. | 490,000 | 57.3 | |||||
Gross profit……………………………………………………………….. | 210,000 | 42.7 | |||||
Operating expenses ………………………………………………….. | 175,000 | 29.4 | |||||
Operating income………………………………………………………. | 35,000 | 13.3 | |||||
Other expenses………………………………………………………….. | 7,000 | 2.5 | |||||
Net income ……………………………………………………………….. | $ 28,000 | 10.8% | |||||
McDonough Products, Inc. | |||||||
Balance Sheet Compared with Industry Average | |||||||
December 31, 2010 | |||||||
McDonough | Industry Average |
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Current assets……………………………………………………………. | $ 471,200 | 72.1% | |||||
Fixed assets, net ……………………………………………………….. | 114,700 | 19.0 | |||||
Intangible assets, net …………………………………………………. | 21,080 | 4.8 | |||||
Other assets………………………………………………………………. | 13,020 | 4.1 | |||||
Total …………………………………………………………………………. | 620,000 | 100.0% | |||||
Current liabilities ……………………………………………………….. | 240,560 | 0.5 | |||||
Long-term liabilities …………………………………………………… | 135,160 | 21.0 | |||||
Stockholders’ equity…………………………………………………… | 244,280 | 31.8 | |||||
Total …………………………………………………………………………. | $ 620,000 | 100.0% | |||||
Industry Average Current Ratio | 1.53 | ||||||
Industry Average Total Debt to Total Assets | 0.68 | ||||||
Requirements | |||||||
1. | Prepare a common-size income statement and balance sheet for McDonough Products. The first column of each statement should present McDonough Products’ common-size statement, and the second column should show the industry averages. | ||||||
2. | For the profitability analysis, compute McDonough Products’ (a) ratio of gross profit to net sales (b) ratio of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is McDonough Products’ profit performance better or worse than the average for the industry? | ||||||
3. | For the analysis of financial position, compute McDonough Products’ (a) Current ratio and (b) Debt ratio. Compare these ratios with the industry averages. Is McDonough Products’ financial position better or worse than the average for the industry? |